Financial Stress Indicator

We are pleased to host a newspaper-based Financial Stress Indicator (FSI) for the United States developed by Lukas Püttmann. The FSI runs from 1889 to 2016 and is available at monthly and quarterly frequencies.

Püttmann constructs his index from the titles of articles published in five U.S. newspapers: the Boston Globe, Chicago Tribune, Los Angeles Times, Wall Street Journal and Washington Post. He proceeds in the three steps, as follows:

In a first step, Püttmann defines eleven topics comprised of 120 words. If a title contains one of these 120 words, he classifies the article as pertaining to financial markets. The eleven topics are "bonds," "business," "central banks," "economy," "general," "gold/silver," "inflation," "railroads," "stocks," "trade," and "trouble." The frequency of topics and keywords within topics are highly skewed, so that ten words account for 41 percent of all article titles flagged as pertaining to financial markets. These ten words are "stock(s)," "bond(s)," "fund(s)," "loss," "gold," "profit," "industry."

In a second step, Püttmann uses four sentiment dictionaries to measure the sentiment of each title flagged in the first step. For a given dictionary, he treats a title as having a net negative connotation if it includes more negative than positive words, e.g., if it contains one negative word and no positive words. This approach yields a raw monthly FSI for each newspaper-dictionary combination. Specifically, the raw indicator value for a given newspaper-dictionary-month is (the number of titles pertaining to financial markets) times (the share of such titles with a net negative connotation) divided by (the number of all titles).

In a third step, Püttmann standardizes the raw monthly FSI for each newspaper-dictionary combination to a mean of 100 and a unit standard deviation from 1889 to 2016. Averaging across all 20 such combinations by month yields his monthly FSI. Averaging over months in the quarter yields his quarterly FSI.